The World Bank has released a statement on the state of East Asian and Pacific economies, concerning the supply shocks created by the COVID-19 outbreak, saying that countries in the region are facing the prospect of a global financial shock and recession.
In a statement released earlier today through the World Bank’s Open Knowledge Repository, the international financial institution has said that the supply shock that China has faced since the coronavirus outbreak is now set to follow in countries around the world, most imminently through nations in the East Asia and the Pacific (EAP) region and its developing economies.
“The COVID-19 virus that triggered a supply shock in China has now caused a global shock,” the statement began. “Developing economies in East Asia and the Pacific, recovering from a trade war and struggling with a viral disease, now face the prospect of a global financial shock and recession. Significant economic pain seems unavoidable in all countries and the risk of financial instability is high, especially in countries with excessive private indebtedness.”
The statement went on to say that economies are set to contract this year, which will result in increased levels of poverty in the region and around the world, before giving advice on potential remedies to the circumstances that countries around the world will now be operating under. The first objective, they say, is to make testing and treatment widely available in order to trace the origins of infections and curb outbreaks.
“To deal with this crisis, countries need to act fast and decisively to contain the spread of infection, while expanding capacity both to treat people and to test and trace infections,” the statement continued.
They also provided some policy advice for governments at large, ordering that extraordinary responses to mitigate economic outcomes are necessary, particularly with regards to protecting the most vulnerable people in their respective societies, but also that policy responses will need to change over time as the pandemic develops.
“Fiscal measures should provide social protection to cushion against shocks, especially for the most economically vulnerable. Firms will need liquidity injections to help them stay in business and maintain beneficial links to Global Value Chains.
“The optimal economic policy response will change over time and depend on the precise nature and evolution of the shock. Given the unprecedented nature of the economic shock to each country, and the fact that it is also affecting all other countries in the region and beyond, an exceptional policy response is needed,” it concluded.
It has become increasingly clear over time that, given the indiscriminate method through which the COVID-19 virus infects people around the world that the most appropriate responses are to both make testing widely accessible and also to put protections in place to protect the most economically vulnerable people in our countries. However, there will also be severe wider economic consequences and it would seem, at this stage, like a global economic recession or even depression is effectively inevitable.
It is also impossible to predict what lies ahead for the global economy, and it will require rapid responses from every country around the world to prevent a complete collapse of our financial systems.